Editorial: A Serious Slowing of the U.S. and Chinese Economies

There is worrisome news that the U.S. Federal Reserve Board of Governors has lowered the projected growth rate of the American economy from 3 percent to 2 percent. This indicates that the U.S. economy will recover at a much slower rate than initially anticipated. This news comes at a time when the Chinese government’s austerity measures and attempts to control inflation are decelerating economic growth.

　

The U.S. and China — Korea’s two largest export markets — are both facing increasingly sluggish economies. If we take into account how the slowdown affects the entire world, this will also prove to be a difficult time for the heavily export-reliant Korean economy. What’s all the more worrying is that, far from being resolved, the economic uncertainties of the U.S. and China are likely to get worse.

　

Even if the U.S. Congress — which will resume sessions this coming August — passes the measure to raise the debt ceiling and issue more federal government bonds, the dangers of a possible financial crisis will continue to linger without a fundamental solution to the budget deficit. If the Chinese government’s inflation-control measures don’t work as planned, it will have to tighten its budget even more rigidly, thereby sending a shock to its trading partners.

　

The current American and Chinese financial difficulties are not something that can be overcome through the much attempted efforts at “international policy coordination.” This is because the root cause of the difficulties lies not in trade imbalances, but in each country’s respective domestic economies. Meanwhile, Europe, too, seems unable to find effective countermeasures to financial crises in countries like Greece, which further aggravates economic uncertainty.

　

When overseas conditions are poor, the domestic economy should help to cushion and balance out the losses. Under Lee Myung-bak’s administration, however, Korea’s export-dependence has shot up while its domestic importance has been noticeably cut down. Although the government has started (far too late) to consider domestic revitalization measures, there is much doubt about whether the technical details of its measures and policy directions will indeed be enough to mitigate current foreign risks.

　

Criticizing the idleness of the government in this regard is unavoidable if all its measures do is promote the use of local, traditional markets or decrease working hours so people have more time to spend money. Increased income levels and equable distribution will ultimately be the foundation of true domestic growth, and it is this domestic strength that will help to parry risks from foreign economies.